I am the Founder of Community of Liberty, a chapter based organization committed to pursuing the art of living in liberty, a member of the Publication Committee of the Claremont Review of Books, an Advisor to TheGold StandardNow.org, and a juror for the Bastiat Prize for Journalism. I have just published with my co-author Ralph Benko the booklet, "The 21st Century Gold Standard: For Prosperity, Security and Liberty," now available as a free download at AGoldenAge.com. I bring to my columns an extensive background in the investment management business, including my experience as an equity portfolio manager, strategist, president of my former firm’s retail sales and marketing subsidiary and member of the parent firm’s management committee. As such, I have been a student and observer of the political/economy and its affects on markets, businesses, and my own business for more than 30 years.

“Now, most of us agree that a plan to reduce the deficit must be part of our agenda. But let’s be clear: deficit reduction alone is not an economic plan. A growing economy that creates good, middle-class jobs – that must be the North Star that guides our efforts.”

In those 49 words, the President articulated a standard by which all economic policies can be measured: economic growth. Advocating growth as the “North Star” also positions the Democrats to take the growth issue away from the Republicans, who ignore this challenge at their peril.

Continued green-eyed obsession with projected 10-year budget deficits based on the jargon of baselines and assumptions that only a few can understand, and fewer still can master, will make them the party of austerity and zero-sum policies. And, that would position the Democrats to hold the Senate and win the House in the 2014 elections on the promise of overcoming the Republican opposition to a new growth agenda.

The GOP can escape this trap by embracing the President’s growth standard as their own. Step one is to subject the President’s proposals to the growth standard. In his response to the President’s speech, Republican Senator Marco Rubio made the perfect counterpoint:

“Presidents in both parties – from John F. Kennedy to Ronald Reagan – have known that our free enterprise economy is the source of our middle class prosperity.

“But President Obama? He believes it’s the cause of our problems. That the economic downturn happened because our government didn’t tax enough, spend enough and control enough. And, therefore, as you heard tonight, his solution to virtually every problem we face is for Washington to tax more, borrow more and spend more.”

In fact, there are few government programs that pass the growth test. For the most part, government spending displaces private sector activity rather than adding to employment or growth. The reason is simple: every dollar the government spends must first be taken from the private sector, either in the form of taxes or borrowing. Therefore, government spending does not add to aggregate demand, but rather shifts resources from the hands of private individuals into the hands of government officials who in pursuit of their self-interest favor the politically connected and expedient over true growth producing opportunities.

Massive increases in regulations and government subsidies to so-called “green energy” will also reduce growth. Subsidizing and otherwise mandating the use of high cost wind and solar power in the face of burgeoning production of low cost natural gas will hurt the middle-class and poor. The environmental benefits are problematic. But the impact of doubling or tripling the costs of home-heating and transportation to the middle-class and working families, like a single mother and waitress who struggles to make ends meet, are all too real. Squandering resources may help the cronies who receive the subsidies, but it does not produce prosperity.

Step two is for Republicans to subject their own proposals to the same growth standard. Support for the Sequester, scheduled to begin on March 1, should be based on the implications for growth as well as fiscal prudence. Reducing the increase in government spending by $85 billion this year will cause some short-term dislocations. But this reallocation of resources to the private sector from the public sector represents less than 3% of the federal spending and only 0.6% of Gross Domestic Product, an order of magnitude that can be accommodated easily in a $16 trillion economy.

And since all spending must be paid for by taxes now or in the future, the $1 trillion reduction in spending over the next ten years that will follow is equivalent to a $1 trillion tax cut, which increases the prospects for economic growth.

More important, the GOP has to embrace the growth standard as essential to restoring balance to the federal budget. Senator Rubio got it exactly right when he said:

“Economic growth is the best way to help the middle class. Unfortunately, our economy actually shrank during the last three months of 2012.

“But if we can get the economy to grow at just 4 percent a year, it would create millions of middle class jobs. And it could reduce our deficits by almost $4 trillion dollars over the next decade.” (Emphasis added.)

Step 3 is to support three proposals in the President’s speech in the name of economic growth:

1) Corporate tax reform: According to the academic studies referenced above, high corporate tax rates are particularly harmful to economic growth. A “revenue neutral” combination of closing corporate loopholes and reducing the corporate tax rate to 25% would not only spur growth, but lead in short order to higher corporate tax revenues a well.

2) Free trade: Removing the last tax and regulatory barriers to trade between the United States and the European Union would lead in five years to an estimated $120 billion increase in annual trade among the 600 million people in these two vast economies which together produce nearly half of the world’s total output and already exchange about $1 trillion in goods and services annually. The Transatlantic Trade and Investment Partnership is expected to take at least two years to negotiate, and joins the Trans-Pacific Partnership the Administration is negotiating with countries that touch the Pacific Ocean. Reducing the barriers to trade – that is voluntary exchanges – whether international or domestic always leads to increased economic activity. By definition, more trade means more economic activity which means more growth.

3) Comprehensive Immigration Reform: Done properly, reforming our broken immigration policies and normalizing the status of undocumented workers is also a pro-growth initiative. Permitting more people with skills, including but not limited to scientists and engineers, to live and work in the United States increases our society’s human capital, creativity and innovation, critical elements to rising productivity and living standards for all Americans. Creating a fair and equitable path to full legal status and citizenship for undocumented immigrants will enhance their prospects to participate fully in the American economic system, contributing to their communities through the work they do and providing jobs in turn as they spend the money they earn.

Step 4 is to reform of our broken monetary system. It is deplorable that so few of our elected officials, with the notable exceptions of Rep. Kevin Brady, prime sponsor of the Sound Dollar Act, and Rep. Marsha Blackburn, who successfully championed a national monetary commission as part of the 2012 GOP platform, have focused on moving monetary policy to center stage. Sustained periods of real 4% growth were common before the final link between the dollar and gold was severed in 1971. About half of all the 10-year periods between 1792 and 1971 experienced an annual average rate of more than 4%. But, there has not been one, not even one 10-year period of 4% growth since the Federal Reserve took over responsibility for the value of a paper dollar. Monetary reform, especially a modern gold standard, is not inherently partisan. And in terms of the growth standard, it promises an order of magnitude higher impact, with more winners and fewer losers than any other policy option on the table.

So let the growth debate begin. Competition over how best to increase growth and opportunity for all Americans, especially the middle-class and those struggling to escape poverty has the power to change the trajectory of political power in the years immediately ahead. Those elected officials and the parties they represent who best perform relative to the growth standard are most likely to be the winners in the Congressional and Presidential elections that lie ahead. That is why the growth standard improves, if only modestly for now, the outlook for the U.S. economy and financial markets.

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